Joseph Hart 17 July 2025

 

At the end of his 1977 masterpiece, Annie Hall, Woody Allen’s character Alvy Singer tells a joke.

“This guy goes to a psychiatrist and says, “Doc, my brother’s crazy! He thinks he’s a chicken.” The doctor says, “Well, why don’t you turn him in?” The guy says, “I would, but I need the eggs.”

While Allen uses the joke to explore the absurdity of love, I often think about this classic cinematic moment in the context of the EU’s relationship with smoking. With a self-imposed “smoke-free” target of 2040 looming, you might think that Brussels would be scrambling to ban combustible cigarettes. Alas, they would, but they need the excise duty.

Funding black hole

Tobacco taxation is a significant source of funding for EU member states. While Big Tobacco comes in for a lot of criticism, governments are more than happy to adjust their values to reap the taxes this lethal product generates.

For example, cigarette sales dropped by 21% between 2011 and 2018. However, EU cigarette excise revenue only fell by 3% during the same period. While tobacco tax increases are sold to us as a way to nudge smokers away from an unhealthy activity, it seems the excise duties are carefully calibrated to sate successive administrations’ thirst for cash.

The growth of the tobacco black market is another threat to EU revenues. The relationship between high excise taxes and illicit cigarette trade is well-documented. In France, outrageous taxes on cigarettes have contributed to illegal tobacco making up more than a third of the market, costing an estimated €2.1 billion in lost tax revenue in 2024. In the Netherlands, a 24% price increase for cigarettes and a 45% increase for rolling tobacco resulted in the government losing €900 million in tax revenue to illicit trade last year.

Of course, not everyone who exits the legal market is shifting towards illicit products. Many people quit via vapes and nicotine pouches.

So, to put it succinctly:

  • As EU smoking prevalence rates continue to drop, so too does revenue from tobacco.
  • Attempts to claw back these losses, via increased excise taxes, actually boost the black market, resulting in further revenue losses.
  • As innovative harm-reduction products like vapes and pouches replace smoking, the EU and its member states also need them to replace the smoking taxes, significantly contradicting their desire to create a hostile environment for smokeless products.

About 70% of the EU’s funding comes from Gross National Income (GNI)-based contributions from each member state. Now, Brussels wants a bigger part of the shrinking tobacco tax pie, and leaked proposals suggest they’ll take a more direct route to getting what they want.

The EU’s crazy plan

The Multiannual Financial Framework (MFF) is the European Union’s long-term budget. It sets spending priorities for seven-year periods, with the next period coming in 2028-2034. The current MFF for 2021-2027 amounts to €1,074.3 billion, but the EU needs new revenue sources to fund expanded priorities.

Some of these expanded priorities include:

  • More COVID recovery plans.
  • Increased defence spending due to the fallout of Russia’s invasion of Ukraine.
  • Climate change and the Green Deal projects.
  • Digital transformation.
  • Fighting illegal immigration through border enforcement and deals with non-EU countries.

At the same time, the EU’s AI Act threatens to leave Europe far behind a less-regulated US and China in what is perhaps the world’s fastest-growing industry. Corporation and income tax from a healthy European tech sector could go some way towards funding these big plans. However, the EU’s overly cautious approach is, not for the first time, stifling innovation and driving entrepreneurs to more accommodating markets.

Instead, the EU is chasing revenues from a declining tobacco industry. Furthermore, it seeks a slice of the same industry’s attempts to create pro-public health products, despite spending decades funding oddball NGOs to lobby for the ban or severe limitation of these products.

The EU tobacco tax funding proposal

According to leaked documents from Germany’s International Affairs Liaison Office in Brussels, the European Commission is exploring new revenue sources, including “levies on electronic waste or tobacco” to finance the next budget cycle.

This revision of the Tobacco Excise Directive (TED) would impose substantial tax increases across tobacco and nicotine products. Excise tax on cigarettes, rolling tobacco, vapes, and pouches would shoot up. However, and this part is key, the revenue generated would flow directly to the EU budget as “own resources” rather than remaining with member states to spend as they see fit.

Understandably, there are several problems with this approach. For starters, it’s a blatant cash grab on member states who need the tax for their own projects.

Funding an endless war, blowing more money on green energy policies that, for some reason, make electricity so expensive that industry is struggling, and shelling out more taxpayer cash on immigration aren’t exactly popular policies. Additionally, the EU’s COVID response might have had the consent of the chattering classes, but it caused inflation and cost-of-living crises that have already hurt the region.

The key question here is whether creating these new revenue streams for the EU would have a positive impact on European citizens. One thing to consider is what these proposals mean for countries, like Sweden and Italy, for whom tobacco products make up important parts of their economies. Another is what this all means for the sovereignty of states, especially those that already feel pushed around by Brussels.

Sweden fights back

Sweden’s status as a shining light for Europe’s harm reduction efforts is already secure. However, in recent times, they’ve stepped up to object to France’s beyond stupid nicotine pouch laws that violate the freedom of movement of goods. Now, Swedish Finance Minister Elisabeth Svantesson turned to face Brussels by categorically rejecting the European Union’s proposal to fund the bloc’s next long-term budget through tobacco tax revenue.

For Sweden, the EU’s plans are particularly obscene. The country has “solved” smoking already, so it’s not in a position to be lectured by the EU on harm-reduction. Svantesson is in even less of a mood to see the country’s coffers raided so that it can fund a bloated bureaucracy.

On top of this, raising the price of snus and pouches within Sweden could undo some of the good work that has driven smoking prevalence to around 5%. In other words, the EU wants Sweden’s harm reduction efforts to go backwards, and they want the Nordic country to disproportionately pay for the privilege.

Harm-reduction coalition

Sweden is not alone in opposing the tobacco tax proposal. A coalition of countries, including Italy, Greece, Romania, and Bulgaria, has expressed resistance, primarily concerned about defending nicotine pouches and avoiding excessive taxation that could fuel black market activity.

Beyond driving up smoking rates, these countries are concerned about these policies’ ability to shrink domestic production and jeopardise employment in tobacco-related industries.

Conclusion

The EC’s shady plans to tax the life out of another industry cannot stand. Dipping into the pockets of member states and essentially garnishing their wages without their consent is outrageous; meddling in their harm reduction strategies is even more so.

Politicians like Elisabeth Svantesson can’t do it alone. Harm reduction advocates around Europe have a chance here to extend the purpose and drive of the moment and build the coalitions needed to fight back. The EU has demonstrated that public health is expendable when they’re short on funding. We must hold them to their ostensible standards and tell them to take their begging bowl elsewhere.